In the last couple of months, all Palerang residents should have received a Notice of Valuation from the NSW Valuer General, so I thought it might be worthwhile going over how these valuations are derived and how they are used by Council in determining council rates.
Property sales are the most important factor considered when determining land values. Valuations are, however, effectively done ‘en masse’, not individually. Benchmark properties are selected within areas, sales are analysed and the benchmarks are then valued by direct comparison to the sales. Any change in the benchmark value is then applied to the whole area. Sales data is analysed every year for land tax purposes, and this data is then used in the triennial valuations.
Land is valued on its ‘highest and best permitted use’, but on the value of the land only (i.e. the unimproved land value—the valuation does not include the value of any dwelling or other structures or improvements).
The whole process is covered by a quality assurance program that helps to ensure a level of accuracy and consistency in the results. Errors can, however, occur and the process includes a mechanism for property owners to appeal valuations if they believe them to be inaccurate. Perhaps not surprisingly, this is one of the rare situations where appeals are generally made against too high rather than too low a valuation.
The 7,947 valuations prepared in Palerang in 2015 were based on sales data for 365 properties and showed on average a 2% increase over the last three years. Values in Bungendore and the western part of the LGA, however, were relatively flat, reflecting the state of the ACT housing market.
Nonetheless, it is important to recognise that an increase (or decrease) in unimproved land value does not necessarily result in an increase (or decrease) in council rates. Council’s total rates bill is set each year by IPART, and does not increase (or decrease) as a result of changes in land valuations. Council only uses land valuations to distribute the rates burden within the Palerang LGA. As such, any changes in council rates arising from the new land valuations are due only to changes relative to other properties within the LGA—if there are resultant rates increases in one part of the LGA, there will necessarily be decreases in some other part.
Council’s rating policy is made each year with the setting of the annual budget in June. Palerang rates are levied in the four basic [mandatory] categories—Farmland, Residential, Business and Mining. The distribution of the rate burden, or the individual Rate Yield for each category, is based on the total unimproved value of land in each category.
Note that rating categories are determined by the primary use of the land in question and as such are quite independent of PLEP Land Use Zones. A property in the RU1 (Primary Production) zone, for example, will only be rated as Farmland if it is operating primarily as a farm. Hobby farms will generally be rated in the Residential category.
In Palerang, rates are calculated in all categories using a single formula:
The Base Rate in each of the four rating categories is calculated as:
where # Assessments is the number of properties in that rating category.
This has the effect of distributing 49% of the rate burden evenly across all ratepayers in a category. The remaining 51% is then distributed in line with land valuations using an ad valorem calculated as follows:
where Total Land Value is the sum of all land valuations in the relevant category.
As such, for a typical rural residential property with a land valuation of $400,000, the ordinary rate for the 2015/16 year would be:
Rates based on new valuations will take effect with the making of the rates for the 2016/17 financial year.
For [much] more information on land valuations and council rates, visit the NSW Valuer General’s website. The website includes a link to the new NSW Globe property information tool that uses Google Earth to locate individual properties and present a range of data, including individual property valuations.
See also the document titled NSW Local Government Rating and Charging Systems and Practices for background information on the subject.